Is it really that bad? As Nicki Decker, Energy Equity Sector Strategist Americas, UBS, and Brian Rose, Senior Economist Americas, UBS, discuss in their May 22 issue of the Intellectual Capital Blog , the national average retail price for gasoline has risen by $0.33 per gallon (+12%) in the past 12 weeks, to $3.00 per gallon. Today's average pump price is $0.49 per gallon above a year ago.
Rising crude oil prices have taken much of the blame for higher gasoline prices, but we would note that gasoline prices typically rise in the springtime due to the seasonal switch to summer-grade gasoline.
Summer-grade gasoline (mandated through environmental regulation) is more costly to produce, and this cost is effectively passed on to the consumer. In seven of the past 10 years, US gasoline prices have peaked in April, May or June—most often in June.
No matter the reason, we all feel the impact of higher gasoline prices to some extent. But in actuality, today's price is just below the average US gasoline price seen thus far this decade. And while prices have risen quickly, we believe they are still well below levels that would cause US consumers to buckle financially. Based on history, the breaking point for consumers has been around the $4.00 per gallon level.
Assuming today's price holds for the remainder of this year, we estimate US consumers might have to spend over $54 billion more on gasoline this year than last year. That is, assuming demand remains flat with a year ago. For perspective, this would represent about 1.1% of 2017 US retail sales; and about 0.3% of US GDP. However, we expect the magnitude of any negative impact to be less.
Barring an unanticipated supply shock, further oil price increases should be temporary. Our price outlook for West Texas Intermediate is $70 per barrel in 12 months (from $72 per barrel now). Seasonal effects, which are driving gasoline prices higher, now may also reverse in the coming weeks. We would also note the following potential offsetting factors: